Saturday, September 28, 2013

Attracting a Data Center to Hilliard

A story was recently in This Week Hilliard about a parcel of land being declared a "qualified data center site."  This was of particular interest to me as my last assignment before retirement was to lead the web hosting business for MCI Worldcom, which included the construction and operation of very large data centers around the world. It was a return to my roots, as I spent many years in data center and network operations for CompuServe.

I believe the land referred to in this article is a parcel owned by the family of former State Representative Larry Wolpert, which is located just north of Davidson Rd, at the place where Trueman Blvd ends. I expect that the reason this Wolpert parcel could so easily be declared a qualified data center site is that CompuServe put in all the legwork in the 1990s to build our large campus and data center on Britton Rd. We required redundant power sources (from more than one substation) and substantial data communications capability, leading both AEP and AT&T to install lots of capacity to the Davidson/Britton area.

Since much of my attention these days is focused on our school district and the community economics related to the schools, one must ask the question - is it a good thing to attract a data center operator to this site?

Let's examine the former CompuServe property, now owned and operated by Verizon. The County Auditor's tax page for this parcel shows that it is valued at $37 million, and generates $1.26 million of property taxes, of which $834,249 is paid each year to the schools.  That's the equivalent of the taxes paid on 185 homes valued at $200,000 each - a whole subdivision. And no kids to educate. Revenue, but no expense (at least for the schools). All good.

That makes it sound like having a new large data center in Hilliard could be a gold mine. Currently the Wolpert parcel is a farm field, and because of a state program called Constant Agricultural Use Valuation (CAUV), this 47 acre parcel is valued at only $63,920, and generates annual school property taxes of just $1,157, or $25 per acre.

I have no problem with giving farmers a break on their property taxes, but let's recognize that CAUV distorts the school funding algorithm, which is the reason many agricultural school districts are deemed to be "poor." Our state income tax dollars flow from us to become state school funding to agricultural districts because of the artificially low valuation of farmland.

In other words, our combined property and state income taxes pay fully for the cost of running our own Hilliard Schools, and also subsidize the cost of running the schools in the rural districts. CAUV is a farm subsidy program funded by redirecting state taxes from suburban school districts to agricultural districts.

Back to a new data center in Hilliard...

A data center won't likely be valued at the kind of money the Verizon campus is. CompuServe built this campus primarily to house professional staff, and so it has lots of expensive office space, which isn't needed for a standalone data center. Most of the money spent on a data center is for the electrical systems, including large backup generators, and the air conditioning. Once they're filled with computers, they consume vast amount of electricity and generate incredible amounts of heat. That's the reason folks like Google and Microsoft have built some of their most massive data centers near hydroelectric dams on the Columbia River in the Pacific Northwest, such as the Google Complex at The Dalles, OR.

Very large data centers can be staffed by very few people, meaning not much income tax revenue for the city. The Google complex I mentioned houses hundreds of thousands of computer servers, but according to the Google website needs only 80 people on the local staff (most of whom seemed to be windsurfing on the Columbia River when I was last out there). I think the City of Hilliard might be underwhelmed by the amount of payroll tax generated by such a facility.

How about the school district?  I don't know anything about Oregon property tax laws, or what kind of deal Google might have struck with the local governments. Google says they invested $600 million in the facility, and I'm sure much of it was for the computers/servers and network equipment. If that facility were built in Ohio, there would be no school tax at all generated by all that stuff, because Personal Property Taxes (PPT) - the tax levied on capital equipment and inventory - has been eliminated in Ohio.

By the way, I favor the elimination of PPT as a tool to attract industrial development back to Ohio, but it pulled the rug out from under many school districts, including ours. The consequence is to have transferred more of the burden of funding local schools from the industrial concerns to the homeowners and other businesses - another reason our local school taxes have climbed over the years.

So if this $600 million facility of Google's had been built in Hilliard, the City of Hilliard would get the income taxes from 80 jobs, and Hilliard City Schools would get property tax revenue on the land, the shell of the building, and probably the power/cooling equipment. It would be a nice chunk of change to be sure, but most of the $600 million would not be subject to taxation.

The point is that data centers might sound like a glamorous kind of thing to have in a community, but in reality they don't generate anywhere near the amount of tax revenue as does a professional office building.

Dublin has this figured out. Drive up Franz Rd sometime, and see what kind of commercial developments they've attracted: lots of office buildings with thousands of professional workers. Not only does that kind of development generate a good chunk of income tax revenue for the City of Dublin and property tax revenue for Dublin Schools, those workers spend a lots of money in nearby restaurants and other retail establishments, who in turn pay more income and property taxes.

Don't get me wrong - I absolutely applaud the efforts of the City of Hilliard leaders to attract more commercial development to our district. But not all commercial development is created equal. With the end of Personal Property Taxes, industrial operations - which is what a data center really is - don't generate all that much income for either the City or the schools. Big box retailers aren't all that helpful either as they employ lots of people, but the average paycheck isn't typically that much. Nor is there any tax generated by their inventory on hand - also eliminated with PPT.

By far, the best kind of development is professional office space, which we now see going up as part of the Continental development on the former Dana site at Cemetery and Britton Pkwy.

More of that please.


  1. Yes, yes and yes. Great post Paul. We need your data-driven view in the public sector in the worst way. I wish our mayor and city council had half your attention to fiscal detail.

  2. Paul,

    Very good point. I hope you do not remove this post! We have not worked well with the City in the past. It seems like JM is working to change that, however much damage has already been done. The city leaders have a job and goal and it is not the same as the HCSD.

    The win win is the root of this problem. It addressed a problem then, but since the school map and city map have limited overlap, well we have what we have.

    Given the districts history in property and real estate matters we are not in a position to do much. I hope we can work with the City. We have not done well in the past.! I would like to share the reason why, but that will only get a removal!

    1. I'd prefer to say that the City government and the School District have different assignments on the same team. 100% of the voters in the City of Hilliard are also voters in the Hilliard City School District.

      And speaking for the majority of us who do not live in the City of Hilliard, we still want the City of Hilliard to be economically healthy - and that means more of the right kind of commercial development.

  3. Given that the alternative in that location (based on what's already south of Hayden Run) is apartments/condos, I'll take the Data Center...